Progress Illinois

As we noted yesterday afternoon, the budget negotiations in Springfield are pretty fluid. But there now seem to be two major income tax proposals on the table: a revised version of Gov. Pat Quinn's initial plan and an amended version of Sen. James Meeks' perennial school funding reform bill, SB 750. Here's how they both shake out:

The governor is not budging on his plan to increase the income tax rate from 3 percent to 4.5 percent. But addressing early criticism that his accompanying tax relief went too high up the income ladder, Quinn is now in favor of raising the personal exemption to $3,000 per person.  (He had originally proposed tripling the current $2,000 exemption.) To provide more targeted relief to low-and middle-income taxpayers, he has also agreed to double both the Earned Income Tax Credit (EITC) and the property tax credit, which is currently capped at $500. The administration estimates that the revamped proposal would produce $3.7 billion to $4 billion in revenue, up from the previous figure of $3.2 billion.

Senate Democrats are considering a different approach. Sen. Rickey Hendon has offered a modified version of Sen. James Meeks' SB 750. Along with doubling the EITC and the property tax credit, Hendon's bill would expand the sales tax base to include consumer services like haircuts, lawn care, and movies -- items already taxed by neighboring states that could net significant revenue. But while Meeks' original proposal raised the personal income tax rate to 5 percent, Hendon's version would only hike it to 4 percent

The idea behind SB 750 was to use the extra revenue to deal with the immediate deficit, then phase in more state funding for education, thereby reducing the state's unfair reliance on property taxes to fund schools. But it's not clear if Hendon's plan generates enough revenue to make this a reality.  According to research by Voices for Illinois Children, if the income tax rate is not boosted substantially (to 5 percent, say), the new revenue could be swallowed up by natural growth in Medicaid and education spending when the federal stimulus bill's State Fiscal Stabilization funding dries up.

Quinn's tweaked proposal might be a non-starter. Republicans and wary Democrats haven't jumped behind the bill, in part because they think lawmakers haven't trimmed enough to warrant a tax boost. Sen. Michael Noland (D-Elgin) for example, credits Quinn with having the political courage to call for substantive changes. But as he tells the Daily Herald, he just can't pull the trigger on any tax hike yet, at least before they dig through all of the programs that can be "reapportioned or scaled back." As we've noted, the Meeks/Hendon plan has more support, at least in the Senate. But finding 30 votes won't be easy and likely won't come without significant concessions.

To complicate matters further, the House passed an appropriations bill yesterday -- sponsored by Speaker Michael Madigan -- to fully fund the state’s contribution into the public employee pension systems, at a cost of over $3 billion next fiscal year. If approved by the Senate, that would expand the the state's budget gap to a staggering $7.4 billion. In other words, raising the income tax rate to 4 percent or 4.5 percent wouldn't even come close to getting the job done.

If consensus can't be reached, it's likely that the General Assembly could adopt a short-term budget that would cover spending for part of the year. They could then return to Springfield to face the shortage in the fall, once political challengers have announced their candidacies. An overtime session this summer is another option, although any income tax boost would then require a three-fifths vote rather than a simple majority -- meaning it would need Republican support.

There are three-and-a-half more days left in the session.  More to come ...